The House Thornburg Lost

Behind Santa Fe’s devastated mortgage company lies an American story of triumph and loss

Garrett Thornburg was born in January, 1946. He grew up in tiny Lakefield, Minn., where his father was a livestock broker; a 1949 edition of the Lakefield Standard records Thornburg Sheep Co. purchasing a prize lamb for $1.10 a pound.

The post-war economy replaced family farms with shopping malls; Thornburg’s generation would bury manufacturing under paper—finance, insurance and real estate. “I was an entrepreneur since I was about 5 years old,” he told The Santa Fe New Mexican in 2000.

Thornburg left Lakefield for a military prep school and went on to Williams College in Massachusetts. He graduated Harvard Business School—the tycoons’ training ground—in 1970. Thornburg’s classmates included George W Bush’s treasury secretary, Hank Paulson, who devised last year’s $700 billion bank bailout.

Out of Harvard, Thornburg didn’t follow his peers to Wall Street. He went to Jamaica, where, with US government financing, he developed a 311-unit housing project.

In December 1971, still in Jamaica, Thornburg married Inger Jirby, an artist from northern Sweden, who speaks seven languages. She now runs a gallery in Taos.

When the couple left the West Indies, Thornburg tried his hand at banking in London, then real estate in New York City. He failed. “I was probably the first Harvard MBA to be on unemployment,” Thornburg told New Mexico Business Weekly in 2006.

He rebounded with a position at what is now the Empire State Development Corporation. There, Thornburg worked on financing to turn the old Commodore Hotel into the Grand Hyatt—one of Donald Trump’s early real estate splashes.

“It was made financially plausible by a 40-year tax abatement from the city—the first ever granted to a commercial property,” The New York Times reported in 1983. “Since there was no statutory basis for tax relief to a private commercial developer, Mr. Trump offered to sell the hotel for $1 to the Urban Development Corporation [where Thornburg was then chief financial officer] and lease it back for 99 years at a modest rental in lieu of taxes.”

The quasi-public sector launched Thornburg to Bear Stearns, the recently deceased investment bank. The Times blurbed Thornburg in June 1979, when the company made him a vice president. Four months after that promotion, Jirby gave birth to a son, Lloyd.

Life was good. Jirby recalls the biggest shock of their marriage came at a party in Southampton, NY when she learned Thornburg could play drums. “Garrett is the smartest man I’ve ever met. And he has ‘star’ written on his forehead,” Jirby tells SFR.

Michael Zarin, named a Bear Stearns VP at the same time as Thornburg, remembers him as talented and scrupulous. “He came with a very high degree of self-confidence, which was merited,” Zarin, who runs an investment firm on Long Island, NY, says.

Thornburg helped Donald Trump turn the old Commodore Hotel in NYC into the Grand Hyatt.

At Bear Stearns, Thornburg told interviewers, he developed expertise in using public “industrial revenue bonds” to benefit private developers. By all accounts, Bear Stearns wasn’t interested. The corporate culture was “vicious,” Zarin recalls. “If something was your own idea, it was very difficult to move it forward…I think Garrett probably had a push within himself to do things on his own.”

Whoever pushed, Thornburg and Jirby left for Santa Fe, where they had summered. It was an odd move for a power player. But not for a landscape painter.

“New Mexico is very perfect for me,” Jirby says. “Maybe it was a disadvantage [for Garrett] to be in a small place like Santa Fe.”

In 1982, in a small office on Galisteo Street, Thornburg founded Thornburg Investment Management. The company managed mutual funds (and still does—$34 billion worth, as of Dec. 31, 2008). To market those funds, he founded Thornburg Securities. There was no internet. Skilled workers had to be lured.

“Investment bankers from New York always got confused: ‘Where? New Mexico? Do I need a passport?’” Ron Chicaferro, who moved from California to join Thornburg, recalls.

As Thornburg’s businesses flourished, his marriage soured. Jirby filed for divorce in 1986, citing a “conflict of personalities.”

During their separation, Thornburg paid Jirby $2,500 a month to care for herself and their son. Jirby claimed her husband “enjoyed a lavish lifestyle.” In tax returns filed with the case, Thornburg claimed income of more than a quarter-million dollars a year.

Jirby and Thornburg had taken out a mortgage to remodel a home Jirby had purchased, where she and Lloyd lived. She claimed Thornburg stopped making the $3,000 monthly mortgage payments and “interfered” in the home sale, thus ensuring foreclosure.

Ultimately, Jirby would keep sale proceeds from the home, the art and physical custody of their son. Thornburg would keep his company stock and his tax-deferred retirement account. He would also keep his father’s gun collection and his interest in Thornburg Sheep Co. back in Minnesota.

Jirby would not discuss the divorce. She never remarried. Thornburg did, in 1990, to Juliana Feldman. (When they divorced six years later, Juliana got a $600,000 settlement, the Lexus, a fur coat and the shar-pei.)

Jirby is not surprised Thornburg stayed in New Mexico.

“I think Garrett liked Santa Fe very much. I also think he was establishing his company here; to pull up and leave after that would have been very difficult,” she says.

Thornburg didn’t leave. Instead, he tried to make New Mexico work for him.

Documents show Thornburg paid $11,000 in state and local income taxes in 1985. Evidently, he thought his companies, already worth millions, should pay even less.

In 1989, Thornburg sued the state of New Mexico’s Taxation & Revenue Department. Thornburg Investment Management and Thornburg Securities had paid $115,000 in gross receipts taxes over two prior years. His lawyers claimed Thornburg Management only truly owed $646, while Thornburg Securities owed zero dollars. The state paid a partial refund of $15,600.

The tax-avoidance strategy, foreshadowed by Thornburg’s New York bond deals, was transplanted to New Mexico.

(It helps to have favorable tax laws. In 2007, New Mexico Sen. Shannon Robinson and Rep. Daniel Silva—both Albuquerque Democrats who lost re-election in 2008—introduced bills that created a tax break for finance companies. Supposedly, it would attract new businesses. The Legislative Finance Committee suggested the true benefit lay elsewhere: “LFC is aware of one company already located in New Mexico, Thornburg Investment Management, which will benefit from the proposed deduction”—to the tune of $210,000 annually. The bills died.)

Thornburg Mortgage was founded in 1993 with tax advantages in mind. The company is structured as a Real Estate Investment Trust. An REIT, unlike a regular company, is exempt from corporate income taxes. The disadvantage is that REITs must pay out 90 percent of profits to shareholders. This limits reinvestment in the company—at least without borrowing.

Thornburg Mortgage was not a “retail” operation like, say, Countrywide, the most infamous of subprime mortgage lenders. Thornburg bought in bulk home loans made by other companies to the most creditworthy borrowers, and sold those loans as securities.

The company suffered when interest rates rose in 1994. A few years later, it endured a wave of prepayments by borrowers. “We got hit over the head with a 2-by-4 twice, and even a donkey could learn by getting hit twice with a 2-by-4,” Thornburg told Mortgage Banking magazine in 2003.

Chastened, Thornburg changed course. In 1998, he hired Ron Chicaferro, then working for another REIT, to lead Thornburg Home Loans. Instead of just buying loans, the company would make them, too. Thornburg found borrowers over the internet and through “correspondent” lenders around the country. The strategy saved tons on storefronts and salespeople.

The company sold “super-prime” “jumbo” mortgages—big houses for rich people—which few New Mexicans could afford. Thornburg often said that 97 percent of his business was out of state.

“Garrett always, always, always purchased only the best loans. That was always the mantra from day one until the day I left,” Chicaferro says.

Thornburg’s reputation grew. By 2004, the adopted Santa Fean was lionized as an odd Western wizard. Washington Post financial columnist James K Glassman began a column with a friend’s advice to “Find Garrett Thornburg…This guy has the best financial mind in America.”

Glassman saved special praise for Thornburg Mortgage: “What makes it attractive is its whopping dividend yield, now 10.1 percent”—compared to, say, 2.1 percent for Nike today. “What makes it Thornburgesque is its way of doing business, which is both unusual and elegant,” Glassman wrote.